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January 18, 2013

SEC Mulls Rule Proposal on Corporate Political Spending

The date of such a proposal’s release, however, remains unclear

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The Securities and Exchange Commission plans to issue a proposed rule requiring public companies to disclose their political spending. The date, however, when such a proposal would be released remains unclear.

Law professors Lucian Bebchuk of Harvard Law School and Robert J. Jackson Jr. of Columbia Law School wrote in a recent post on the Harvard Law School Forum on Corporate Governance and Financial Regulation that the SEC recently updated its entry in the Office of Management and Budget’s Unified Agenda to indicate that, by April, it plans to issue such a notice of proposed rulemaking.

As they argued in their petition to the SEC—which they say was signed by a broad group of academics with widely varying views on corporate and securities law—“the case for requiring public companies to disclose their spending on politics is strong.”

In the 18 months since filing their petition, the two lawyers say that the proposal has attracted massive support from a record number of comments filed with the SEC. “The petition’s comment file includes more than 300,000 comment letters, all of which except 10 support the petition,” the two say. “Notably, the file includes several letters from institutional investors—and all of these unanimously support the petition. One letter, from a coalition of 40 institutional investors who together manage more than $690 billion, urged the SEC to adopt rules requiring disclosure of corporate political spending.”

SEC spokesman John Nester told AdvisorOne on Friday that the regulator is “determining whether to make a recommendation for the commission’s consideration,” and that “no date for a determination has been set.” Nester added that “the timing for any determination of whether to recommend proposal of a rule would be affected by continuing staff work on the required rulemakings under Dodd-Frank and the JOBS Act.”

But Bebchek and Jackson note in their article that although the director and deputy director of the commission’s Division of Corporation Finance “signaled that the SEC was considering” such a proposal in November, the OMB update provides “a firm timetable for SEC action on disclosure of corporate political spending.” Moreover, the two lawyers say that this OMB “update makes clear that the SEC’s consideration of this issue will result in a Notice of Proposed Rulemaking.”

Bebchek and Jackson said they are “pleased that the SEC has indicated that it plans to move forward on these rules,” and they are “optimistic that rules will soon be in place to give investors the information they need to assess how corporate funds are spent on politics.”